MRPL – a good investment at Rs.50

Joint venture with Shell

The shares of Mangalore Refinery and Petrochemicals Ltd (MRPL) are traded in the stock markets at Rs.66.90 now. The company’s revenue has increased in Q1 from Rs.12471 crore in Q4 to Rs.13371 crore. However, its net profit has plummeted from Rs.552 crore to Rs.172 crore. Operating profit margin has slipped from 7.74% to 2.68%. Net profit margin has slipped from 4.43% to 1.29%. MRPL has formed a joint venture with Shell to provide aviation turbine fuel (ATF) to airports in Mumbai and Delhi. MRPL is a subsidiary of India’s premier oil exploration company Oil & Natural Gas Corporation (ONGC). Currently, MRPL provides ATF to airports in Bangalore, Hyderabad, Mangalore, Ahmedabad and Kozhikode. The company’s ATF sale has increased by 23% from 54 TMT last year to 67 TMT amounting to Rs.2291 crore. In 2010-11, MRPL fuelled 12674 flights.

YoY good but QoQ not

The company’s net profit zoomed from to Rs.172 crore from Rs.28 crore in the corresponding period of the previous year. Gross refining margin of the company increased to $2.99 a barrel from $1.97 a barrel in the corresponding period of the previous year. The throughput increased to 3.30 million tonnes from 2.91 million tonnes in the corresponding period of the previous year. The company recorded a net exchange loss of Rs.82.91 crore as against Rs.152.81 crore in the corresponding period of the previous year. It recorded an inventory loss of Rs.60 crore as against Rs.89 crore in the corresponding period of the previous year. Total turnover increased to Rs.14539 crore from Rs.8999 crore in the corresponding period of the previous year. Export turnover increased to Rs.5335 crore from Rs.2459 crore in the corresponding period of the previous year. The company will be commissioning its additional 3 million tonnes per annum plant in the beginning of 2012. What do all these things indicate? It indicates that the company has performed exceedingly well during the quarter ended 30.06.11 when compared to the corresponding period of the previous year. But if you compare its performance with the previous quarter ended 31.03.11, its performance has steeply declined. Therefore, it will be better to wait for the next quarter (Q2) results before taking any investment decision in the company’s shares. Alternatively, one can buy the shares if then drop below Rs.50.

Fishermen’s fears allayed

The company’s proposed single point mooring (SPM) facility in Mangalore Port has raised concerns from fishermen. But the company has allayed the fears and assured that it will not affect fishing in the sea. It will commence its facility in April when the sea is calm. MRPL has plans for establishing a retail network for setting up 122 retail outlets. It will venture into retail operations if it senses that margins are good. It can be profitable only in a deregulated regime.

Iranian payment problem

MRPL is receiving around 65% of its crude oil requirements from Iran. Now the company has resolved the issue of payment mechanism with Iran. An alternative arrangement has been made with Kuwait. MRPL receives 7 million tonnes of crude oil from Iran and 1 million tonnes from Kuwait. The company’s outstanding due for Iranian crude is $2.9 billion, out of which, $1.9 billion is payable. Iran offers 90 days credit to the oil refiners. MRPL refines this crude oil and produces petroleum products like furnace oil, air turbine fuel, motor spirit, naphtha, LPG and other products. In order to avoid disruption of supply of petroleum products in the domestic market, MRPL bought spot cargo of crude from Brunei. MRPL is the biggest importer of Iranian crude oil in India. Domestic refiners in India prefer Iranian crude oil despite its high sulphur content. Now that the Libyan civil war has come to an end, Libya has started producing crude oil to its fullest capacity namely 1.30 million barrels a day. Libyan oil is sweet and can be used by any refinery.

Protest against SEZ

Prolonged protests by families displaced because of the Mangalore Special Economic Zone (MSEZ) brought upgrade and expansion of MRPL phase-3 to a virtual standstill. Protesters were blocking men and equipments from entering the refinery’s work site. The expansion will help MRPL to increase its refining capacity from 11.82 million tonnes per annum to 15 million tonnes per annum. The expansion is taking place at an area of 252 acres. MSEZ is a multi product SEZ adjacent to the company for which 1800 acres of land has been acquired. Protests against MSEZ have hurt the company’s expansion. MRPL is working with ONGC to set up an aromatic complex plant in MSEZ.

Buy the shares at decline at around Rs.50

The share price of MRPL has come down from a high of Rs.89 on 10.11.2010 to Rs.67 now. If the share price comes below Rs.50, it will be a good acquisition for medium term holding for decent returns.